By Tiernan Ray

Evercore Partners’s Patrick Wang today kicks off coverage of Taiwanese chip maker MediaTek (2454TW) with an Overweight rating, and a price target of $480 in New Taiwan dollars, calling the stock his “top emerging markets idea.”

“MediaTek is positioned to remain the fastest growing mobile chip player over the next few years, given their dominant position in the hyper-growth mid- range and low-end segments,” he writes, arguing the company is willing to tackle the commoditization of mobile products that other vendors “fear.”

That could pay off for the company as its volume of sales surges even as margins improve, he thinks.

Wang sees several immediate positive developments for the company, including possible upside in Q4 revenue, and the ramp of China’s 4G LTE wireless services later this year:

Strong smartphone trends manifesting in 4Q and 1Q upside. With guidance of flat to -5% QoQ, monthly results point to 4Q revs of NT$39.8bn (+2% QoQ) versus Street of NT$38.5bn. We model 1Q -10% QoQ, above 3-yr avg -12% […] Healthy demand and component pull (i.e., Xiaomi, TCL, etc.) with some parts (esp. 2C) on allocation / shortage with extended lead times […] TD-LTE SOC (MT6595) sampling with qualifications starting now, ahead of expectations (2Q14). While Qualcomm benefits from the early China LTE ramp, MediaTek should be able to intercept the market in 3Q14.

For the full year, Wang is modeling $165.5 million in revenue and $26.4 per share in EPS, again, in New Taiwan dollars, above consensus on the Street for $163.7 million and $26 per share.

The company has already made major wins with some high-profile products, including Amazon.com’s (AMZN) Kindle line of tablets. Here’s Wang’s table of MediaTek’s victories so far:

MediaTek, argues Wang, is capable of becoming the number two supplier in the world in baseband chips for LTE networks behind Qualcomm (QCOM), driven by gains in China, where it already has a lot of business:

Dominant share in local markets (China / Asia) positions MediaTek to benefit from stronger Local unit growth vs. Export. Growth in China will be bootstrapped to LTE (competitive landscape discussion, Page 6) as 3G hands the reins over to LTE over the next few years. That said, the largest OEMs in China (Lenovo, ZTE, Huawei, and Coolpad) are all current customers […] We expect MediaTek to be ready with an LTE thin modem (MT6590) in 1H14, ship its first LTE SOC (MT6595) mid-year, and sample worldmode chipsets in 4Q14. Others have struggled and the path to certification is not easy. That said, MediaTek appears to be slightly ahead of schedule based on product sampling / delivery – an encouraging sign. If they do succeed, our estimates are likely to prove very conservative given their existing relationships and large customer footprint in China. Currently sampling a 5-mode LTE thin modem (MT6590) with shipments in 1H14. However, we see a tough comp against Qualcomm’s thin modem (MDM96x5) given their time to market advantage.

Wang acknowledges that everyone and his brother are trying to take a piece of Qualcomm in the LTE battle, including Intel (INTC), Broadcom (BRCM), and Nvidia (NVDA). Here’s his rundown of how the battle is shaping up:

He also likes the prospects for MediaTek getting a bigger share of the export market than it currently has:

The biggest source of upside to the model ahead comes from Exports. While we don’t anticipate an onslaught of Tier-1 wins, we see tremendous opportunities in India, EMEA, and the US. A comprehensive portfolio (worldmodem SOC) helps and will lead to an presence in the US and / or Europe in MediaTek is starting from a low base in exports. Every 10 points of gains impacts EPS by +5% (vs. our ’15e). Smartphones offer the most upside given their 4x available market size. We forecast 15% share of the export smartphone market in 2013. Mgmt’s focus on this area should lead to significant growth ahead.

By moving beyond the company’s base in 2G, and 3G phone chips, to chips for LTE and such, Wang expects gross margin can expand from 43.5% last year to 44.3% this year, leading to operating margin of perhaps 21%, up from 18% last year.

About Emerging Markets Daily

Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. The Barrons.com Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools.